Following on from the previous Spanish Presidency of the Council of the European Union (see EUROPE 13300/5), the Belgian Presidency is continuing work on the ‘CMDI’ legislative package aimed at strengthening the European framework for banking crisis management. Ahead of a meeting of experts on Friday 26 April, it presented Member States with options on how to bridge the funding gap that could arise in the event of the resolution of a medium-sized bank, using national bank deposit guarantee schemes (DGS).
Within the euro area banking union, in order to be able to call on the support of the ‘Single Resolution Fund’ (SRF), a failing bank must finance its resolution process by first mobilising up to 8% of its own ‘MREL’ assets in order to carry out an internal ‘bail-in’.
On the ‘CMDI’ package, the options put forward by the Belgian authorities take account of the positions expressed by certain Member States. In particular, the use of DGS funds to reach the 8% threshold should be a decision of last resort that facilitates the cessation of certain banking activities or their transfer to another entity.
In order to focus the use of DGS schemes on small and medium-sized non-systemic banks, “the Presidency could envisage the introduction of a restriction based on the size of the institution”, for example institutions managing less than €30 billion in assets, according to a Belgian preparatory note of which Agence Europe has obtained a copy.
In addition, recourse to DGS schemes would be limited to distressed banks that demonstrate that they can be resolved, as they meet a target level of ‘MREL’ assets and/or have been subject to a positive ‘PIA’ assessment by the national resolution authority, demonstrating the value of proceeding with a resolution rather than a traditional liquidation.
In order to limit the burden on national deposit guarantee schemes, the Belgian Presidency is inviting Member States to consider several options, including setting a maximum intervention threshold in the event of resolution at 75% of its overall funding. In particular, this provision would make it possible to guarantee the primary mission of a DGS scheme, which is to guarantee savings of up to €100,000 with a single bank.
Creditor hierarchy. In its initial ‘CMDI’ proposal (see EUROPE 13164/7), the European Commission suggests rationalising the hierarchy of creditors affected in the event of a banking crisis by creating a single category of depositors including individuals, SMEs, large companies and public authorities.
While the Spanish Presidency had tested a two-tier creditor hierarchy, the Belgian Presidency is putting forward a three-tier system for deposits that are better protected than unsecured debt: - the highest tranche would only include covered deposits from savers; - an intermediate tranche would consist of non-covered deposits from households and SMEs above of €100,000; - the lowest tranche would include non-covered deposits of businesses with an original maturity exceeding one year.
See the note from the Belgian Presidency of the Council: https://aeur.eu/f/bzk
In late March, the European Parliament adopted its negotiating position on the ‘CMDI’ package (see EUROPE 13376/21). (Original version in French by Mathieu Bion)